Fundamental Analysis of Deepak Nitrite: The name Deepak Nitrite always enters the conversation whenever investors talk about the recent boom of the chemicals sector in India. The stock has given multi-bagger gains to thousands of investors. But is there more to it? Or all the boom is done and over now?

In this article, we’ll conduct a fundamental analysis of Deepak Nitrite Ltd. and try to know if there is more than meets the eye.

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Fundamental Analysis of Deepak Nitrite

We’ll start off with a brief highlight of the business of the company and how its product portfolio has changed over the years. Later, we’ll race through the industry landscape and financials of the stock. A section on future plans and a summary conclude the article at the end.

Company Overview

Deepak Nitrite Ltd. (DNL) is a fast-growing chemical intermediary Indian company with a well-diversified portfolio. It is the largest producer of sodium nitrite, sodium nitrate, Phenol, and Acetone in India. 

DNL has incorporated over 50 years ago in 1970 in Gujarat by C.K. Mehta, father of the present chairman and MD Deepak C. Mehta. 

As of today, it produces 30+ products from its 6 manufacturing plants. The company serves over 1,000 customers across 45 nations globally. It had a strong workforce of 2,006 employees at the end of FY22.

Deepak Nitrite has been a key beneficiary of the boom of the Indian chemicals industry in the last half-decade. In the sections ahead, we’ll read more about this and how it has become a preferred choice of Indian companies for Phenolics, which they used to import earlier.

Segment Analysis

The product line of DNL can be divided into 4 segments:

  1. Basic intermediates are standard products like sodium nitrite, sodium nitrate, etc which find applications in industries such as petrochemicals, rubber, agrochemicals, and industrial explosives.
  2. Fine & specialty chemicals are specialized, high-margin products. The company caters to the specific needs of clients in the paper, personal care, pharma, and more such sectors.
  3. Performance products are chemicals (used in paper, detergents, and other industries) that add particular characteristics to any product. 
  4. Phenolics division expanded rapidly in recent years as DNL become an import substitute for Indian automotive, pharma, rubber, and various players.

Revenue Segments of Deepak Nitrite

The table below shows how the revenue segments of Deepak Nitrite have grown over the years.

Share of Revenue Segments FY17FY18FY19FY20FY21FY22
Basic Intermediates47.2843.7732.6021.9017.3118.20
Fine & Speciality Chemicals25.4627.1419.5513.6317.4612.22
Performance Products17.9817.5814.7117.876.937.64
(figures in %)

The share of different product segments of DNL in its revenue has changed over the years. The most significant is the Phenolics segment growth (it comes under Deepak Phenolics, a wholly-owned subsidiary of Deepak Nitrite now) which grew to account for 62% of the company’s revenues in FY22. Set up in 2014, Phenolics was a small division of the company generating insignificant income earlier.

Segment Results of Deepak Nitrite

Similarly, the table below highlights the share of profits before interest and taxes (earnings before interest and taxes) of different divisions of DNL.

EBIT SegmentsFY17FY18FY19FY20FY21FY22
Basic Intermediates88107145209195313
Fine & Speciality Chemicals82115127175334257
Performance Products-18-8834192399
Total EBIT1522134519911,1841,536
(figures in Rs Cr)

Geographical Segments

The exports accounted for 22.49% of the total income of the company in FY22. Domestic sales fetched a majority of 77.51% of the total revenue.

We are now well aware of what the company does and how it has matured over the years. Let us equip ourselves with the Indian chemicals industry landscape as part of our fundamental analysis of Deepak Nitrite.

Industry Overview

According to the data from FICCI, India holds a 4% market share in the $ 5,027 billion worth global chemicals industry. China stands as the largest producer with a 39% share. The ‘commodity’ chemicals and ‘specialty’ chemicals make up around 80% and 20% of the total market respectively.

Since 2017, the Chinese chemical industry started faltering as the government came down harsh to control pollution and emissions. Because of this, the prices increased worldwide. The structural change presented a huge opportunity for Indian companies as most of them already had eco-friendly practices in place. 

The Indian specialty chemicals sector is estimated to double its share in the worldwide market from 4% presently to 6% by 2026. The annual growth has been pegged at 18-20% in FY22 and 14-15% in FY23. 

Going forward, the outlook and revenue visibility are expected to stay strong for the Indian players as MNCs shift their chemical requirements to India and other APAC nations.

We have read about the company, its segments, and the chemicals sector so far in our fundamental analysis of Deepak Nitrite. In the sections ahead, we’ll do a quick SWOT analysis and race through the financials of the stock.

SWOT Analysis of Deepak Nitrite


DNL has a comprehensive product portfolio across four segments catering to clients in various sectors thereby diversifying associated risks and helping it to obtain new clients easily.


Uncertainty in the raw materials and fuel costs can hurt profit margins as the company is not able to pass through increased costs for long-term agreements.


Like in the past, DNL’s strategy of substituting imports for critical products will help it to capitalize on value-added downstream products in the future.


Obsolescence risk and a short supply of skilled labor for complex chemical processes are two significant threats to the company.

Deepak Nitrite – Financials

Revenue & Net Profit Growth

Over the last six years, the operating revenues of Deepak Nitrite have grown at a CAGR of 29.31% from Rs 1,455 crore in FY17 to Rs 6,802 crore in FY22. The annualized growth of operating profit and net profit is high at 50.30% and 85.91% on low bases respectively.

The table below shows the operating revenue, operating profit, and net profit of the company for the previous six fiscals.

Fiscal YearOperating revenueOperating profitNet profit
CAGR (%)29.31%50.30%85.91%
(figures in Rs Cr except for CAGR)

*The net profit for FY17 has been adjusted for an exceptional profit of Rs 70 crore.

Operating & Net Profit Margins

Following the boom of the Indian chemicals industry, the margins of the company also expanded multi-fold over the years. 

Reduced production and stringent environmental norms increased the prices of chemicals globally. Furthermore, the China+1 strategy brought more demand. This helped Indian manufacturers stand in line with global players, resulting in significant growth in their profit margins.

The table below brings forward the improvement in the operating margins and net profit margins of DNL. 

Fiscal YearOPMNPM
(figures in %)

Return Ratios: RoCE & RoE

The return ratios of Deepak Nitrite have improved significantly because of the earnings from the Phenolics and Fine & Speciality Chemicals segments. The figures in the table below convey the transition of DNL into a highly profitable business.

Fiscal YearRoCERoE
(figures in Rs Cr)

Higher profits made Deepak Nitrite a financially stable stock. But how? The earnings growth has helped Deepak Nitrite to deleverage itself. We read more about this in the next section.

Debt/Equity & Interest Coverage

Notice in the table below how the management has paid back the debt to bring down the debt-to-equity ratio. Additionally, increased shareholders’ funds and earnings before interest & taxes further improved debt to equity ratio and interest coverage ratio of the stock.

Fiscal YearDebt / EquityInterest Coverage (times)

Future Plans Of Deepak Nitrite

So far we only looked at the previous years’ data as part of our fundamental analysis of Deepak Nitrite. In this section, we’ll try to get an idea of what lies ahead for the company and its investors.

  1. The management has planned to invest around Rs 1,500 crore in FY22 and FY23 to enter upstream/downstream products and increase the efficiency of existing product lines.
  2. The Rs 700 crore CAPEX of the phenolics subsidiary will likely get completed by FY24 adding high-value solvents with backward integration capabilities to the product portfolio.  
  3. Additionally, the company has been de-risking its manufacturing operations by setting up a Sodium Nitrate plant in Oman by investing $ 15 million in the JV with a 51% stake.
  4. Furthermore, the management has earmarked a new investment of Rs 1,000 crore to set up a world-class facility for Polycarbonate compounding business.

Key Metrics Of Deepak Nitrite

Before we hit the end, let us quickly revise the key metrics of the stock.

CMP₹2,251Market Cap (Cr.)₹30,627 
EPS₹56.26Stock P/E39.92
RoCE30.13 %RoE22.94%
Promoter Holding49.13%Book Value₹268
Debt to Equity0.01Price to Book Value6.74
Net Profit Margin10.6%Operating Profit Margin16%

In Conclusion

The recent Q3FY23 results (Rs 209 crore profit on the sales of Rs 1,991 crore) tell how the management is steering Deepak Nitrite towards higher growth in the future. Investors will have to keep a close eye on the operating margins and quarterly sales growth to see where the stock is going. 

In your opinion, what can be unexpected speed bumps for investors in the near future? How about you let us know your views on DNL in the comments below?

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